by Charles Grant

Have western attitudes to the rise of China been based on wishful thinking? China’s increasingly tough approach to diplomacy is leading governments in the US and in Europe to rethink their policies towards China. Western leaders are starting to question some of the optimistic assumptions on which those policies have been based.

Until very recently, many western bankers, business people and politicians were broadly optimistic about the rise of China. They assumed that as China became more developed it would become more western. As it integrated into the global economy its society would open up, it would play a constructive role in multilateral institutions, and it would help western governments sort out key foreign policy challenges. China’s leaders seemed to understand that their top priority – the economic development of their country – required friendly relations with other major powers, notably the US.

There has also been a pessimistic view of China’s rise, held by people in the US defence establishment, some right-wing think-tanks and the human rights lobbies. They have argued that as China develops it is becoming more assertive, less willing to compromise with the West, less welcoming to foreign investors and more repressive politically. Like other rising powers throughout history, the pessimists have thought, China would disrupt the international system. They have pointed to China’s soaring defence budget as support for their case.

Of course, both views have been based on truth. China is not a monolithic entity. Within the leadership, many institutions and personal and ideological factions compete for power. But until recently the optimists dominated western views of China. I was an optimist when, two years ago, I wrote (with Katinka Barysch) ‘Can Europe and China shape a new world order?’ (http://www.cer.org.uk/pdf/p_837.pdf). Our report argued that China was evolving into the “responsible global stakeholder” that Robert Zoellick had urged it to become when he was US deputy secretary of state.

Over the past year the optimists have found it increasingly difficult to sustain their view. There are still examples of China being helpful – for example, it has sent ships to catch pirates in the Indian Ocean, and engaged in G20 discussions – but overall it has become a much pricklier partner.

China’s foreign policy has become more assertive. Its claims to the Indian state of Arunachal Pradesh have become more vociferous. It is being less helpful to the West over the Iranian nuclear problem – and has become more hostile than Russia to further sanctions on Iran. Its treatment of the EU is sometimes contemptuous – it cancelled one summit and regularly punishes countries whose leaders meet the Dalai Lama in an official setting. Western governments have suffered increasingly powerful cyber-attacks that have been traced to mainland China.

China’s political system has become more repressive. Moves to introduce greater democracy into local government and the Communist Party have faltered. Dissidents are facing a tougher time. In December Liu Xiaobo was sentenced to 11 years in prison for organising a pro-democracy petition.

China’s economic policies have become more nationalist. Many foreign investors in China complain about exclusion from key markets and unofficial forms of discrimination. China’s manipulation of its currency downwards, driven by a mercantilist desire to boost exports and foreign currency reserves, exacerbates the problem of global economic imbalances and is fuelling protectionist sentiment in other countries.

Recent events have brought home to public opinion in the West how China is changing. At the Copenhagen climate change conference in December, China worked hard behind the scenes to scupper the kind of deal that western countries and many poor nations wanted (at one point it sent a deputy foreign minister to negotiate with Barack Obama). And this month Google has said that it may leave China because of cyber attacks on its business and increasingly stringent internet censorship.

If one talks to people in China about the troubled state of relations between China and the West, many of them are baffled. They know little of the incidents that have caused problems, which are unreported in the Chinese media. They say that most Chinese people are focused on domestic issues – such as jobs, pollution and soaring house prices – rather than foreign policy.

So the source of China’s tougher line seems to be the leadership, rather than pressure from the people. Three factors may explain why hard-liners are winning more arguments within the leadership.

• China’s economy has performed impressively during the global recession, growing by 9 per cent in 2009. Meanwhile the western economic model is viewed as discredited. China’s leaders would not be human if they did not feel a bit cocky – especially since they have been on the receiving end of patronising lectures from western leaders about the superiority of western capitalism. The emerging super-power feels it has the right to assert its own interests more forcefully.

• Yet China’s leaders feel insecure. The unrest in Tibet (in 2008) and Xinjiang (in 2009) caught them by surprise. Rapid economic growth and urbanisation are creating huge social tensions. Endemic corruption makes local party bureaucrats unpopular. The booming housing market – fuelled by the government selling land to property speculators – means that many young middle class people cannot afford to buy flats. Few Chinese people want western-style democracy, but the leaders know their legitimacy is built on thin foundations. Hence their reluctance to allow a more open society.

• The current leadership, led by Hu Jintao and Wen Xiabao, is due to hand over to the ‘fifth generation’ of leaders in 2012. There is much manoeuvring for position. The machinations within Zhongnanhai, where the top communists live and work, are impossible to decipher. But some key figures seem to be pushing a nationalist line in order to boost their support among party cadres. In China, as in most countries, nationalist policies can be popular.

American attitudes to China are palpably hardening. At some point this year the US may declare China to be a currency manipulator and then apply protectionist measures. The EU finds it very difficult to get tough with anyone. But European leaders are increasingly critical of China, at least in private. China’s leaders should not assume that European markets will remain open to them indefinitely.

China’s attitude to international relations is ultra-realist. It will take what it can get, while respecting power and facts. But China’s leaders may have miscalculated by underestimating the impact of their harder line on Washington and European capitals. How well-informed are the people in Jonghnanhai? Do they receive objective reports on how Chinese words and actions impact on western political systems? And do they care what western leaders think?

Undoubtedly, there are Chinese leaders who stand by the premise of the ‘peaceful rise’ slogan – that China’s economic development requires some modesty in international affairs and good relations with the West. When the most senior leaders see that their current approach may spur several powerful countries to work together to contain China, they may wish to modify their course. But if they maintain the hard line for a prolonged period, China’s relations with the West will become very tense. Free trade and the world economy may well suffer.

Charles Grant is director of the Centre for European Reform.

By Katinka Barysch

George W Bush convened the first G20 summit in Washington in November 2008, at the height of the global financial and economic crisis. At two further summits in 2009, G20 leaders pledged to co-ordinate their economic stimulus packages (as well as exit strategies), avoid protectionism, address global imbalances, triple the resources of the IMF, and work out stricter rules for banks, hedge funds and other financial players.

The G20 was hailed as the body that would prevent the global economy from hurtling into another great depression. It would also allow the world's top economies, including for the first time the big emerging markets, to co-ordinate their policies in such a way as to make future crises less likely. 

"Whatever happens, the G20 is already a winner", wrote Martin Wolf in the Financial Times at the time of the G20 Pittsburgh summit in September 2009. "The fact that it has become central to global policymaking may prove a more important legacy of this crisis than any specific agreements it reaches."

Less than 18 months after the initial Washington summit, however, the G20 has almost disappeared from public view. As growth has returned in most countries, the sense of urgency to 'fix' the world economy has started to fade. The new body's legitimacy is already being questioned. That is unfortunate because the G20 still has a daunting to-do list. The risk now is that the debate about what the G20 should do is superseded by one about what it should look like.

Critics are right that the G20 is unwieldy. Once the representatives from international organisations such as the IMF and the WTO, as well as regional groupings such as ASEAN, are added, the total number of leaders and top officials at G20 summits is closer to 30. The easiest way to cut the G20 down to size would be to reduce Europe's over-representation: France, Germany, Italy and the UK are members. Spain, which holds the rotating EU presidency, will once again attend the next G20 summit. So will the presidents of the European Commission, the European Council and the European Central Bank (and now Jean-Claude Juncker, who heads the eurogroup, wants to come, too). The fact that one third of G20 participants hail from Europe and only two from Africa reduces the legitimacy of this body in the eyes of many poorer countries.

The Europeans will one day have to streamline their representation. (Meanwhile, Pascal Lamy suggests how the Europeans can make less of a nuisance of themselves, see 'Too many Europeans in G20: If you must hog the seats, could you at least talk less?'.) Perhaps other emerging economies will be added instead. But this is not the time to open the Pandora's box of who should be allowed to attend G20 summits. If the group is to regain momentum and authority, it needs to first and foremost deliver on its promises.

On trade, G20 governments have not fully lived up to their pledge to refrain from protectionism. In the 12 months following the Washington summit, the countries represented there adopted 179 policies that harmed foreign trade, investment or workers, according to Global Trade Alert. The overall damage, however, has been limited and the pace with which G20 countries have imposed new tariffs and anti-dumping actions has slowed in the last six months. World leaders had also instructed their trade negotiators to finish the WTO's Doha round by the end of 2009. But multilateral trade talks remain stuck.

The G20's report card is similarly mixed when it comes to re-regulating financial markets. Despite the promise to work out new rules together, several G20 members have announced measures without consulting their partners, for example the US administration's Volcker rule or the EU’s alternative investment directive. Nevertheless, the newly established Financial Stability Board (consisting of G20 finance ministers, central bankers and regulators) has helped to forge a broad consensus on what needs to be done in terms of capital and liquidity ratios, bankers' pay and so on. At the next G20 summit in June in Toronto, governments are likely to back plans for a new levy on banks.

Least progress has been achieved on global imbalances. The G20 has been sidelined, while the real discussions about exchange rate policies and trade balances have taken place between Washington and Beijing. Whether the Americans manage to put global imbalances on the Toronto agenda despite Chinese opposition is a serious test for the new forum.

To achieve results, the G20 leaders need to do two things. First, they need to concentrate on unfinished business and resist the temptation, or the pressure, to take on new tasks. The G20 has rightly rejected suggestions that it should discuss geo-political issues, such as Iran's nuclear programme. It should avoid being saddled with global climate change discussions. South Korea's idea of adding development and poverty reduction to the agenda of the G20 summit in Seoul in November is harder to dismiss. Such a broadening of the agenda would keep emerging economies interested and show that the G20 agenda does not merely reflect rich countries' interests.

Second, for the G20 to make a difference, leaders need to focus on the urgent but unexciting task of integrating the G20 into the existing systems of global governance. The G20, like the G7/8 before it, is a process, not an organisation. It cannot take legally binding decisions. It does not have a permanent secretariat. But it does have a signalling function that can galvanise governments and other international organisations to act. It did so, for example, by adopting a strong stance on tax havens at the London summit in April 2009. In March 2010, Angel Gurria, secretary-general of the OECD, said (at the GMF Brussels Forum) that on taxation and transparency, there has been "more progress in the last 12 months than in the previous 12 years, because of a clear mandate from the G20". But not all institutional links function that smoothly. Officials in the UN and other venerable bodies resent that the G20 is hogging the limelight. Yet it is these bodies that will have to implement G20 decisions.

Katinka Barysch is deputy director of the Centre for European Reform.

by Tomas Valasek

There are growing signs that Russia’s relations with NATO are on the mend. Senior Russian thinkers, some close to the government, have been cautiously talking up the possibility of Russia joining the alliance, as have several western officials and think-tanks (including the CER.) While some powerful forces in Russia continue to view NATO as a hostile force, the latest signs from Moscow are encouraging. But even assuming that the more pro-western forces within Russia prevail, membership of NATO will remain at best a long-term goal. In the short and medium term, Russia and NATO need to put considerable effort into reducing mistrust.


A group of prominent Russian thinkers recently invited their western counterparts to talk about the possibility of Russia joining NATO. What prompted this initiative is not obvious, but the atmospherics have clearly changed. Russia is being nicer to its neighbours, while a number of European countries – including those in Central and Eastern Europe – are being nicer to Moscow. NATO has effectively put enlargement on hold. Barack Obama’s ‘reset’ seems to be changing attitudes on all sides. The challenge before Russia and NATO is to try to turn this opportunity into a lasting improvement in relations.

The allies are not of one mind on the subject of Russian membership of the alliance. But conversations with NATO officials and diplomats suggest that NATO could be ready by its November summit to offer Moscow the possibility of joining, if and when the latter meets accession criteria. With additional persuasion – though this is more questionable – NATO may even create a special accession track for Russia, different from the one NATO used for previous candidates, so that Moscow feels that it is being treated like a great power. But the allies’ bottom line is that, one way or another, Moscow will need to adopt many of NATO’s norms, including those on democracy and transparency, before it can become a member.

Those Russians who want to explore the possibility of accession seem to have a different approach in mind. They are looking for a bargain of sorts with NATO. The alliance would promise not to enlarge eastward or arm regimes deemed unfriendly by Russia. Moscow would gain a veto over alliance decisions on matters which may affect Russia. In exchange, NATO would get better co-operation from Russia on things like missile defence or Afghanistan. NATO’s rules or norms do not seem to be a part of the bargain. Tellingly, few Russians use the term ‘membership’ with regard to NATO. They talk either of ‘integration’ or ‘organisational unity’. The former implies that both sides adopt some of the other side’s rules; the latter implies that neither side compromises internally. Either model is distant from what NATO has in mind.

But if membership is not the right thing for NATO and Russia to focus on in the near term, are there other viable ways to improve co-operation in the next few months and years? One Russian speaker at the meeting in Moscow put forth a possible solution. Instead of exploring membership, NATO and Russia should ‘demilitarise’ their relationship. Moscow would stop holding exercises that simulate a war with NATO, like the ‘Zapad’ exercise last year, in which 12,500 Russian and Belorusian troops repelled a fictitious attack from NATO. Russia would also change its strategic documents to make clear that NATO is not a ‘threat’ or ‘danger’. NATO would respond in kind, with no exercises and no new bases near Russia’s borders. If demilitarisation is successful, the theory goes, NATO and Russia would gradually come to view each other as partners. And that could open doors to even closer forms of co-operation in the future.

This is a sensible idea but not without difficulties. For a start, is Russia ready? The government is sending out mixed signals. Besides being nicer to its neighbours lately, Moscow has also launched sweeping defence reforms. These will change the Russian military from a grand force built to fight NATO into a smaller but more agile army better suited for regional conflicts like the one in Chechnya. That is good news for NATO. But only last year the Russian government also agreed a new military doctrine, which calls NATO’s activities the greatest danger to Russian security. So there is presumably a large segment of the Russian establishment that would oppose closer ties with the alliance.

In order to take up demilitarisation, NATO would have to be convinced that Russia is equally serious. Just as important, this initiative would need to win the support of the new allies in Central and Eastern Europe. Some of them feel that NATO has been neglecting the possibility of a conflict in Europe, and they want the alliance to adopt new ‘reassurance’ measures. These would involve, among other things, the creation of a new centre at NATO tasked with keeping an eye on future crises, including those involving Russia.

Some in NATO will argue that ‘reassurance’ would kill the hopes of a rapprochement with Russia, by provoking Moscow. But in fact the opposite is the case: without reassurance NATO will not reach the consensus it needs to offer Russia a new relationship – whether it means demilitarisation or, in the long run, integration. The right approach for NATO is to rebuild trust among the allies through reassurance while striving to reform its relationship with Russia. ‘Demilitarisation’ sounds like a useful idea to explore. The new allies should be supportive: after all, they stand to gain the most should Russia stop rehearsing attacks on Central and Eastern Europe. ‘Demilitarisation’ would be the ultimate reassurance measure.

Tomas Valasek is Director of foreign policy and defence at the Centre for European Reform.